Should You Consider a Backup Offer?

Should you consider a backup offer? Are backup offers good options for home buyers and sellers? In highly competitive housing markets with desperate buyers and multiple offers, it might seem pointless to write a backup offer, but why not? Buyers and sellers have different considerations, but backup offers can be good options for each. In the end, a back up offer doesn't cost a buyer anything and it can provide the seller with a nice fall back should the primary offer fall apart.

What is a Backup Offer?

Simply put, a backup offer is an accepted offer that immediately becomes primary in the event the current accepted offer fails. Buyer and seller negotiate on terms and conditions just as they normally would. If they reach agreement, a backup offer exhibit is added which spells out the process. Key points about a backup offer:

• Negotiated the same way as any other offer
• There is a set expiration date, usually a couple of weeks
• Becomes primary with written notice from the seller to the buyer
• All time frames begin upon that notification
• All conditions in the contract apply. Closing date can be renegotiated or within seven days of last date of any contingency
• Buyer can terminate at any time prior to expiration with written notice to the seller

States may vary in format but in Georgia, the backup contingency exhibit is pretty straightforward and easy to understand. Once initialed by all parties it’s added to the contract and the waiting process begins. Remember - this is a legal, binding contract once accepted.

Buyers Should Consider Backup Offers

In strong sellers markets, a home may be on the market only a few days and in some cases, a few hours. There are a lot of moving parts to a home purchase, both procedurally and emotionally. Not all deals make it to the closing table, especially during chaotic markets. Buyers regularly toss outrageous offers out and sometimes win; then comes the “holy chit, what did I do” moment. Many things can blow a deal up, why not be a backup if that happens? Just a few reasons deals fail:

• Buyers bid on emotion, then sober up
• Buyers fail to understand the market
• Buyers fail to understand the buying process
• Issues around due diligence or appraisal can’t be resolved
• Financial upset may occur causing loan approval or cash issues
• Any number of “unknowns” associated with getting a deal done
• Sometimes, terminating and losing earnest money is the best option

Why not write a backup offer, there’s no risk to it. In fact, in volatile markets there can be advantages for buyers:

• Protection from increasing prices
• Protection from decreasing inventory
• Buyers can still look for another home
• Terminate at any time

Sellers Should Consider Back Up Offers

Sellers hold the advantage in seller's markets, why not maximize that? New listings, especially highly desirable ones, attract significant attention. It would be rude to accept only one outrageous offer. There are a number of sound reasons for a seller to consider taking a backup offer.

• Buyer react viscerally to new listings, exploit their emotion
• Have insurance in case the first buyer bails
• Negotiate hard, might have an offer as good as the primary one
• Avoid having to open the home to buyers again
• Avoid having to answer “what happened with the other offer”
• Avoid the potential “what’s wrong with it?” stigma
• Avoid similar questions from agents, appraisers, inspectors and underwriters

Back Me Up

Home buyers should embrace second place, the number of primary deals falling apart is up since the Covid influenced bull rush. Home sellers should offer that consolation prize knowing that it could become the primary deal; negotiate accordingly. Hesitancy remains among many about considering backup offers, in most cases without reasonable logic. Done correctly – and there’s that “Broadway lights” sized warning – both buyers and sellers can use backup offers to their advantage.

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